In light of South Africa’s high levels of unemployment and relatively small informal sector, enabling and supporting growth of small, medium and micro enterprises (SMMEs) in the informal sector is of developmental importance and a policy priority. The associated benefits of SMME growth, such as employment creation, enhancement of economic growth and poverty alleviation, provide further motivation for the prioritisation of this sector.

In view of the developmental importance of SMMEs, the purpose of this paper is to examine the determinants of SMME performance in South Africa. In particular, this paper is interested in the role played by education and skills in driving firm performance. The research objective of this paper is addressed by firstly using direct and indirect measures of skills to generate a human capital profile of SMME owners across both the formal and informal sectors, and secondly by using econometric analysis to examine the factors determining firm performance along two dimensions: financial performance and the ability to access market opportunities. Finally, based on the analysis in this paper and related research, policy guidance concerning skills development initiatives to the SMME sector is provided.